Bechtel Gets G.O.P. Support for a Potential Tax Break

By EDMUND L. ANDREWS

Published: October 28, 2003

WASHINGTON, Oct. 27 - The Bechtel Corporation, which hired a former commissioner of the Internal Revenue Service to lobby on its behalf, has won support from House Republicans for what could be a generous new tax break.

The tax break, which will be taken up on Tuesday by the House Ways and Means Committee, was originally intended to help shore up factory jobs in the United States by reducing the corporate tax rate for domestic manufacturers to 32 percent from 35 percent.

But the bill now includes a provision sought by Bechtel, an engineering conglomerate that is also one of the biggest recipients of government contracts for Iraqi reconstruction, that would reduce taxes on "architectural and engineering services."

The new provision would also benefit the Halliburton Company , whose previous chief executive was Vice President Dick Cheney and which now has a Pentagon contract to repair the Iraqi oil infrastructure. The Fluor Corporation , which recently won a $102 million contract to work on Iraq's electrical system, would receive a tax reduction as well.

The value of the tax break remains unclear, and there was confusion on Monday over whether it would apply to profits earned on the billions of dollars in overseas work that the companies do.

But the provision is merely one example of many special interest additions that have been attached to what Republican and Democratic lawmakers both consider a must-pass tax bill.

The general purpose of the legislation is to replace a longstanding tax break for American exporters that the World Trade Organization has declared an illegal trade subsidy. The bill would repeal the existing tax break, which is worth about $55 billion over the next 10 years, with new tax breaks worth $142 billion over the same period.

House and Senate leaders both want to pass a bill quickly because the European Union has threatened to impose $4 billion in tariffs on American products if the United States does not repeal the old tax break.

The issue has become a bonanza for corporate tax lobbyists, and the bill's potential beneficiaries now include Hollywood movie studios, oil and gas pipelines companies like Exxon Mobil , logging companies, big agricultural cooperatives and smaller interests ranging from restaurant owners to liquor distributors.

Donald C. Alexander, a former I.R.S. commissioner who is lobbying for Bechtel, said the provision to help his client merely preserved a tax break that the engineering conglomerate would have otherwise lost.

"We're not asking for relief greater than what we are being denied," Mr. Alexander said in an interview on Monday, adding that the World Trade Organization estimated the old tax break was worth $22 million a year to architectural and engineering companies.

But the new provision could be far more valuable than that. Bechtel, a privately held company that does not disclose its full financial results, had revenue of $11.6 billion last year. About $9 billion of that was in the United States.

The tax break that lawmakers want to repeal affected only Bechtel's foreign projects. As currently written, the new tax law would reduce the company's tax rate for work both in the United States and overseas.

Republican staff members on the House Ways and Means Committee said the bill's purpose was to reduce taxes on work only in the United States. That in itself could prove more generous than what the big construction contractors had before.

But Mr. Alexander said his own impression was that Bechtel would receive a lower tax break on its foreign projects, just as it had under current tax law.

Mr. Alexander said he had been hired only by Bechtel and not by either Halliburton or Fluor, the two other major engineering conglomerates that would benefit from the new bill.

According to the Joint Committee on Taxation, the bill would cost the Treasury about $61 billion over the next 10 years. The measure would raise $55 billion by repealing the old tax break and $26 billion more by tightening rules on tax shelters and raising customs duties. The new corporate tax relief would total about $142 billion over the next decade.

Representative Bill Thomas, Republican of California and chairman of the House Ways and Means Committee, has promoted the measure as the American Jobs Creation Act of 2003.

The biggest components of the bill would gradually reduce the corporate tax rate on manufacturing income in the United States to 32 percent from 35 percent and provide a similar reduction for all corporations with net income of less than $20 million.

In addition to embracing architectural and engineering services as "manufacturing," the bill provides the same treatment for oil and gas production, timber, software and farming.

But the measure has scores of special interest provisions as well. Hollywood studios would be included as manufacturers to obtain the lower tax rate on movies made primarily in the United States. The bill would also reduce taxes on royalties from foreign licensing of movies, regardless of where they were made.